Yesterday’s upward thrust in stocks, on good breadth and volume, supports my favoured scenario of a push on into 21-23 March.
There is a potential divergence in % stocks above 50MA that could spell a period of sideways range action after that.
A significant divergence is now present on my medium term model for the S&P500, whilst noting that the Dax is on model, having been playing catch up from underperformance.
A couple more sessions of contined upside for stocks and we will start to hit overbought and overbullish measures again. I still have a couple of stock indices longs and will be looking to exit them at the end of this week or the beginning of next if that occurs.
A key development yesterday was an upwards break in treasury yields – the rounded bottom is gaining momentum. There is a large wall of money in treasuries that could start to flow towards risk assets.
My expectation, based on my previous analysis, is that commodities should be the main recipient, and that commodities should outperform stocks leading into next year’s solar peak. Yet, what we are currently seeing is the opposite.
Here are commodities versus the medium term model – very much on model. Yet I was anticipating stocks aligning with the model whilst commodities pull away. So what’s up?
The US dollar is strong again. Good economic data from the US is helping support the USD, as well as no further indication yesterday of more, or further extended, dollar-diluting programmes. As I previously noted, the US dollar is in a delicate long term position, which I expect to break downwards, helping propel commodities to their secular conclusion. However, right now we lack a trigger for that, and with fairly neutral sentiment towards the Dollar and the Euro, that doesn’t give us a reason either.
Of course a strengthening USD does not make a commodities rally impossible. Another key factor is China. Recent Chinese data has been softer than expected, and whilst expectations are for Chinese easing/stimulus, as yet the Chinese authorities are being cautious. Here are the latest OECD leading indicators, and whilst we now see a definite up turn in most countries, China isn’t following suit yet.
Here’s gold. The smaller wedge is the first potential reversal opportunity. Failing that, the confluence of long term rising support, falling s/r and the 23 fib look like the next most likely bounce point.
Marc Faber is still a longer term gold bull, but anticipates gold could fall to $1500 here. Such a move would put it below all the key moving averages that have supported the secular gold bull to date and so I think it’s unlikely, but, much like the USD, it is delicately poised, and I am closely following both.